Tariffs have played different roles

Tariffs have played different roles in trade policy and the nation's economic history. Tariffs (often called customs) were by far the largest source of federal revenue from the 1790s to the eve of World War I, until they were surpassed by income taxes. Tariffs are import tax rates and the collected income is called customs or custom duties or Ad valorem taxes. Responding to an urgent need for revenue following the American Revolutionary War, after passage of the U.S. Constitution the First United States Congress passed, and President George Washington, signed the Hamilton tariff act of July 4, 1789, which authorized the collection of duties on imported goods. Customs duties as set by tariff rates up to 1860 were usually about 80-95% of all federal revenue. Having just fought a war over taxation (among other things) the U.S. Congress wanted a reliable source of income that was relatively unobtrusive and easy to collect. Tariffs and excise taxes were authorized by the United States Constitution and recommended by the first United States Secretary of the Treasury, Alexander Hamilton in 1789 to tax foreign imports and set up low excise taxes on whiskey and a few other products to provide the Federal Government with enough money to pay its operating expenses and to redeem at full value U.S. Federal debts and the debts the states had accumulated during the Revolutionary War. Hamilton thought it was important to start the U.S. Federal government out on a sound financial basis with good credit. The first Federal budget was about $4.6 million dollars and the population in the 1790 U.S. Census was about four million. Hence the average federal tax was about $1/person per year. Then tradesmen earned about $0.25 a day for a 10-12 hour day so federal taxes could be paid with about four days work. Paying even this was usually optional as taxed imports listed on the tariff lists could usually be avoided if desired.



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